If you've researched solar in California in the past two years, you've encountered NEM 3.0 — and probably heard conflicting things about it. Some sources say solar is dead in California. Others say it's still worth it. The truth is more nuanced: NEM 3.0 changed the rules significantly, but solar-plus-battery remains a smart investment for most Southern California homeowners when done correctly.
What Changed with NEM 3.0
NEM 3.0 — officially called the Net Billing Tariff (NBT) — took effect April 15, 2023, for new solar applicants at PG&E, SCE, and SDG&E. Here's the key change:
Under NEM 2.0 (before April 2023), when your solar panels sent excess power to the grid, you received a credit at close to the retail rate — roughly $0.28–0.32/kWh. Under NEM 3.0, you receive what the utility calls "avoided cost" — the wholesale price of electricity, which averages about $0.04–0.10/kWh. That's a reduction of roughly 75%.
The export rate is also no longer flat. There are 576 distinct time-of-use rate combinations based on hour, day of week, and month. Most midday hours (when solar panels produce the most) have the lowest export rates — near zero. Evening hours from 6–9 PM in summer have the highest rates, occasionally reaching $2.00–3.50/kWh.
Why This Changes the Solar Math
Under NEM 2.0, a solar-only system could achieve bill offsets of 80–95% by sizing panels to match annual consumption. Under NEM 3.0, exporting excess midday solar and buying it back at $0.40–0.55/kWh during evening peaks is financially punishing. A solar-only system now achieves more like 40–60% bill offset without a battery.
The payback period for solar-only under NEM 3.0 is approximately 8–10 years. With a properly programmed battery, that compresses to 5–7 years and bill offsets climb back to 70–90%.
The Battery Is Now the Key
A home battery — such as the Tesla Powerwall 3, EcoFlow DELTA Pro Ultra, or Franklin WH — stores excess solar production during low-rate midday hours and discharges during the expensive 6–9 PM peak window. This is called time-of-use (TOU) optimization, and it's the core financial strategy under NEM 3.0.
The math: if your battery stores 10 kWh of excess solar at $0.05/kWh avoided-cost credit and discharges it when you would otherwise pay $0.50/kWh, you're capturing $4.50 of value from that 10 kWh rather than $0.50. The battery's ROI comes from this spread.
Sizing for NEM 3.0
Correct system sizing is more important than ever under NEM 3.0. The goal shifts from "maximize production" to "maximize self-consumption." Key principles:
- Size the solar array to roughly match daily consumption — not to maximize generation.
- Pair with at least one battery (13–15 kWh) to capture peak production and shift it to evening.
- Program the battery to charge from solar during the cheapest export hours and discharge starting at 4–5 PM before peak rates kick in.
- If you have an EV, charge it from the battery during off-peak hours (midnight–6 AM) to avoid grid power at peak rates.
NEM 3.0 Grandfathering
Customers who submitted a complete interconnection application before April 14, 2023 remain on NEM 2.0 for 20 years from their original approval. There is no option to switch between tariffs.
25-Year Outlook Under NEM 3.0
Even under NEM 3.0, the long-term financial case for solar-plus-storage in Southern California is strong. SCE's residential electricity rates have increased an average of 6–8% per year. At that rate, a $0.45/kWh average rate today reaches $1.08/kWh by 2040. Every kilowatt-hour your system produces and consumes locally becomes more valuable every year. A well-sized solar-plus-battery system installed today for $35,000–$50,000 has an estimated 25-year net value of $45,000–$85,000 after system cost, depending on consumption and rate trajectory.